Welfare programs for the poor are resented by the middle-class for good reason. Money is siphoned from the taxpayer and given to people who refuse to work or obey the laws and customs of society. The welfare class, when given a chance, makes clear they do not appreciate the help and resent the fact the taxpayer expects them to be grateful. It is no wonder the middle generally resents the lower in a social democracy like America.

Welfare takes many forms. This story about Tesla is an example of how the rich get tax money shoved into their pockets.

Tesla Motors, an electric car maker backed by the U.S. Department of Energy (DOE), posted a $49.8 million loss in the first quarter of 2014. This loss compared to a profit of $11.2 million in the same period a year earlier despite selling more cars.(i) Last year’s profit was not due to electric car sales, but to sales of California zero-emission-vehicle environmental credits to other auto manufacturers. Those lucrative credits have declined and tight battery supply has made it harder to produce the carmaker’s electric vehicles.

“Sales of California zero-emission-vehicle environmental credits to other auto manufacturers” is a nice way of saying free money from the middle-class. The state forces the normal car makers to tax their customers on behalf of Tesla. The cost of those credits, after all, is a part of the cost of building cars. That cost is passed onto the consumer in the price of the car. Tesla, in effect, gets to tax every car buyer in California.

During the first quarter of 2013, Tesla received about $68 million (12 percent of revenue) from the sale of zero vehicle emission credits. Note that without the sale of these credits, the company would have lost over $50 million during the first quarter of 2013.[v] According to a Wall Street analyst, Tesla earned as much as $250 million in 2013 on their sale. Translated into dollars per vehicle, Tesla made as much as $35,000 extra on each sale of its luxury Model S electric sports sedan through state environmental credits that it sold to other auto manufacturers that need to buy credits to satisfy California regulations. Adding in the Federal tax credit of $7,500 per vehicle and a state rebate of $2,500 per vehicle, the state and federal incentives totaled as much as $45,000 per vehicle that Tesla sold for as much as $100,000, depending on the model and options.[vi]  Essentially, regular taxpayers who buy typical cars, trucks and minivans are heavily subsidizing an additional car for a clientele whose average income is just under $300,000 per year.

This is the math problem that haunts modern corporatism. Hidden taxes to subsidize unprofitable ventures looks like a great solution to the “problems” of the market. The rulers look around and say we need to be using electric cars, but the pesky market refuses to comply. That’s called a market failure. The solution to “market failure” is to form these public-private partnerships to “jump start” business like Tesla in order to “nudge” the market in the preferred direction. In theory, electric cars will become competitive at some point and then the market will take care of the rest.

There are two problems with this. One is the money spent on this hidden tax does not come from nothing. It is money that would be spent on some other good or service. These other industries go to the state looking for help for the same reason Tesla gets help. The system quickly becomes a game of whack-a-mole. The state is forever on the hunt for new Peters to rob in order to pay the growing list of Pauls. Government becomes a highwayman, robbing anyone trying to operate a business.

The other problem is the math is not zero sum. The state thinks it can supply an unlimited amount of energy to the economy, as if it is a first order perpetual motion machine. That’s no more possible in an economy than it is in physics. Eventually, the economy begins to grind to a halt or the state grinds to a halt. In California,  the state is bankrupt. Several of its cities are in bankruptcy and the state has no way to pay its pension obligations. Looks like the state will fail first.

That’s the big difference between welfare for the rich versus the poor. The poor are an annoyance. The cost of the various programs is not insignificant, but it is largely paid by the rich. The high earners pay the bulk of the taxes which cover the trillions in welfare payments. The vast web of corporate welfare, subsidy schemes like Tesla and financial shenanigans in the banking system loots the middle class. That’s what the war on the middle is intended to accomplish. That’s why the middle-class is disappearing.

Way back in the olden thymes I had one of those conversations familiar to anyone in the tech world back then. The web was just getting going and everyone was putting up websites hoping to get rich. Someone I knew was involved in one such venture. He was giving me the elevator speech about how it was positioned to take advantage of synergies and vectors and so on.

After he was done I asked him how they planned to make money. I was not being cheeky, I just assumed he left that part out for some reason. Instead of telling me, he went into another spiel about unique visitors per month and page visits. My reply was something about the bank not taking page visits as payment on his mortgage. He thought I was daft, but not long after, the venture collapsed.

The great challenge of the tech boom was figuring out how to make money from things people did not need, but they could possibly want. Some services like porn figured it out for a while. Others like eBay and PayPal came up with real businesses to replace existing businesses. Others figured out how to transfers big chunks of their costs onto some unsuspecting sucker like the ISP.

Others figured out how to tax you through your phone bill or tax the person with who you were doing e-commerce. These parasites were not looking to add value to the system, but rather extract value. This is where patent trolls come into play. They shake down companies for rents, abusing the patent laws. They are just gaming the legal system to control an artificial bottleneck. That’s the racket of dirtbags like James Logan.

James Logan freely admits that he’s never made a podcast.

But he also insists he helped create the medium of podcasting. Logan says that it happened in 1996 — and that he has the patents to prove it.

In a controversial legal battle, PersonalAudio, the company founded by Logan, is suing comedian Adam Carolla’s ACE Broadcasting, two other podcasters and networks Fox, CBS and NBC, saying they are infringing on his copyright and owe him money.

The trial begins in September. Carolla has taken to the Web to raise money for legal fees against what he called “patent trolls.”

Carolla says he needs $1.5 million to face PersonalAudio in an East Texas courtroom that historically has been favored by patent litigants. So far, Carolla has pulled in just over $370,000 on the Fundanything.com crowdfunding website, including a $20,000 donation from e-commerce giant Amazon.

“The first thing they (PersonalAudio) said was ‘Give us $3 million,'” says Carolla, whose show is listed in the Guiness Book of World Records as the most downloaded podcast ever. When faced with the suit, Carolla said he chose to fight.

“Obviously, $3 million is out of the question,” he says. “But even if they said tomorrow, ‘Give us $100,000, and this will all go away’ — $100,000 for what?”

Should he lose, Carolla says he might shut down his show, a sentiment seconded online by others.

Podcasting has been around since at least 2004, initially as a vehicle to supply non-music programming for the Apple iPod, which launched in 2001. Apple began offering podcasts, through subscriptions and downloads, via its iTunes app in 2005.

As the popularity of smartphones and tablets has eliminated the need for subscriptions and downloads, sites such as TuneIn Radio, SoundCloud, Stitcher and Swell offer instant listening, both on the Web and via increasingly popular smartphone apps.

Nerdist’sChris Hardwick built a huge online following with his podcast, which he parlayed into a high-profile hosting gig with cable network AMC. Comedian Aisha Tyler, a co-host of TV’s The Talk, parlayed her popular podcast Girl on Guy into a best-selling book, Self-Inflicting Wounds. National Public Radio has found huge audiences for shows such as This American Life, Snap Judgement and Fresh Air, which regularly top the iTunes podcast charts.

The trials — six separate suits between PersonalAudio and Carolla, Discovery Networks, podcaster Togi Entertainment and the broadcast networks — will take place in a small Texan town with 24,000 residents. Marshall, three hours east of Dallas and near the Arkansas border, has become known as the “patent trial capital”, a popular place to get a trial in a city whose docket isn’t filled with other cases waiting to get a hearing.

Many patent cases take place there, and historically, litigants win 60% of the time, according to a recent study by PriceWaterhouseCoopers.

Carolla’s team fought the locale, seeking a bigger city and fearing the history.

PersonalAudio, based in Beaumont, Texas, has a handful of employees working on creating new technologies, says Logan, who himself is based in New Hampshire.

PersonalAudio has no products but instead owns patents and investments in several companies, including consumer tech company Bringerr.

Logan’s 1996 idea predates podcasting as we know it. His concept was downloadable entertainment via the Internet to a new kind of MP3 player he was trying to market. The product fizzled, so he switched gears to subscription of cassette tapes. He filed for and was granted several patents, which included the notion of having downloaded playlists.

In 2009, PersonalAudio amended the patent to include podcasting.

It is patently obvious this guy is adding nothing to any of these companies. They are not using his technology. He has not created anything unique or original that they are relying upon to do their work. He is good at fooling stupid government clerks in the patent office into giving him rights to things he never created. His entire business is built around the idea of finding someone he can sue in a courtroom full of rubes.

That’s the main problem with these patent suits. Their claims have no relationship with the real value of their product. Carolla would never pay $3 million to this idiot in order to record a podcast. He probably would not pay anything. Instead he would find some other way to do his show without using whatever it is this guy claims he owns. James Logan is simply a highwayman, one that robs you on the internet.

The Left was preparing to re-run the Summer of Recovery to boost their electoral chances this fall. The fourth quarter GDP was not horrible, but not great either. All of the usual suspects had convinced themselves that the economy was finally getting off the mat and headed for a boom. Unemployment claims we slowing and the number of posted jobs was increasing. Happy days were here again!

Maybe not:

The U.S. economy slowed drastically in the first three months of the year as a harsh winter exacted a toll on business activity. The slowdown, while worse than expected, is likely to be temporary as growth rebounds with warmer weather.

Growth slowed to a barely discernible 0.1 percent annual rate in the January-March quarter, the Commerce Department said Wednesday. That was the weakest pace since the end of 2012 and was down from a 2.6 percent rate in the previous quarter.

Many economists said the government’s first estimate of growth in the January-March quarter was skewed by weak figures early in the quarter. They noted that several sectors — from retail sales to manufacturing output — rebounded in March. That strength should provide momentum for the rest of the year.

That’s right, the weather. It is usually sunny and warm in winter but for some strange reason it was cold this winter. That’s why everyone stopped doing stuff.

And on Friday, economists expect the government to report a solid 200,000-plus job gain for April.

America adds about 2 million people to the adult population each year, after accounting for deaths and immigration. That means the job market has to grow accordingly. Adding 200,000 jobs a month is treading water. That’s why this graph never gets on TV:

But hey, why not bring in another twenty or thirty million Latino peasants to do the jobs Americans won’t do? That’s fix this stagnant economy!

High frequency trading, known as HFT, is the hot new thing for market pundits to reference when discussing the markets. They don’t know much about it, but mentioning it give them credibility. This post over at MR brought out some particularly oleaginous characters defending what is nothing more than a way to game the system. The idea is to use special knowledge to buy and sell equities in order to minimize losses and arbitrage imbalances in the market.

This has been the point of insider trading and self-dealing since knife money. In a completely honest and transparent market, the only way to make money is to buy and hold stocks. Trading, assuming fees are involved, is pointless since everyone knows what everyone else knows. There’s no chance to buy a depressed stock that is about to rebound or sell a stock that is about to collapse. Informational asymmetry, at least the belief in it, is what allows a market to exist.

What the HFT guys are up to is two things. One is they can process news that impacts share prices faster than any human. The algos can grind through a mountain of data by the time humans traders have buttered their toast. Bake in the right assumptions about how the humans will react to particular data and your algorithm will make perfect trades before anyone else in the market. Selling a stock that is about to drop 10% saves millions. Buying just as it heads up 10% and you make millions.

That’s the boy scout approach. The big boys like to play dirty. Here’s how. Let’s say there are 20,000 shares for sale at $10.00 and 10,000 shares for sale at $11.00. A buyer can have all 20,000 shares at $10.00. If you’re the guy looking to sell at $11.00, you may be willing to sell at $10.00 if you think there are no takers at $11.00. You can drop the price, but you still stand in line behind the guy selling at $10.00 until those shares are sold. That’s how it works. No line cutting.

The HFT guys beat this system by exploiting the relatively low cost to cancel. They can put sell orders out at $10 and see if demand is strong. They can cancel those sell orders, thus making the bit of the line in front of the $11 sell orders disappear. Humans can’t play this game, but robots are very good at it. In fact, cancel orders have rocketed up as more and more algorithms have sprung up in finance. Getting ten cents more per share may seem like peanuts, but not when you’re moving tens of million of shares.

The thing is, this is neither new or unexpected. A great book to read for anyone interested in the financial markets is called The Money Game, written fifty years ago. The author was a market insider when that meant something. He predicted the rise of machines in trading and the rise of crooks using machines to get an edge. Mencken, I think, said there are no new ideas, just new ways of saying them. That’s true of the HFT scams. It is just another way for sharps to fleece the squares.

One of the ways to spot a fanatic is the old line about their inability to change their mind or change the subject. The first part is the key. No amount of evidence can get them to question their beliefs. This is something you see it with Bitcoin. The believers, despite the mountain of bad news, are still hoping and praying their Utopian fantasy will come true. This latest set back could, however, make the fantasy more expensive.

The Internal Revenue Service may have just taken some of the fun out of Bitcoin. But that may mean that the virtual currency is growing up.

The I.R.S. announced on Tuesday that it would treat Bitcoin, the computer-driven online money system, as property rather than currency for tax purposes, a move that forces users who have grown accustomed to operating under the government’s radar to deal with new tax issues and reporting requirements.

While that may seem like an expensive headache, some financial experts view the move as a way to push Bitcoin further away from the fringes and into the mainstream financial system.

“It’s getting legitimacy, which it didn’t have previously,” said Ajay Vinze, the associate dean at at Arizona State University‘s business school. The ruling, he said, “puts Bitcoin on a track to becoming a true financial asset.”

This was always going to be a problem for Bitcoin. No government on earth is going to treat it as a currency. It will always be property. That means the guys who bought ten grand in Bitcoin when it was trading at $50 will now owe taxes on their windfall. If you go into a pawn shop and sell a million dollars in gold coin the pawn shop is reporting the sale to the IRS and you have to report the gain or loss on your taxes.

In most states, gold is not hit with sales tax, but that is not the case with Bitcoin or any other digital currency. That means Bitcoin dealers will now be hit with sales tax audits, assuming states are savvy enough to do it. That’s the real story of Bitcoin. To this point, government have not had a need or desire to address it, so Bitcoin and other digital schemes have been able to flourish. When that stops, the flourishing stops.

The flaw in the Bitcoin plan has always been obvious to anyone familiar with how countries work. To be a country, you must control your borders, your currency and your central authority. Puerto Rico is not a country. It has a defined border, but Washington runs its currency and most of its government. Puerto Ricans can be as proud of their people as they like, but the remain a property of America.

The US government guards the dollar better than it guards the border. They know the key to keeping the American ruling elite in power is the dollar. If the world went to different money, say backed by energy, the current arrangements in Washington would unravel quickly. When you can no longer print away your mistakes, thus transferring the cost to some other place in the world economy, you have to act differently.

Often, what turns up on the mainstream media reads like a parody of what is in the mainstream media. The lack of self-awareness is breathtaking. Of course, this is, in part. the result of being in a bubble, insulated from the rest of us. Even so, it seems that someone inside the bubble should notice that stories like this strike people outside the bubble as a bit bizarre. Apparently, no such person exists.

The super-low mortgage rates that tens of millions of Americans locked in during the refinancing boom are now discouraging many of these borrowers from buying another home and giving up those loans.

The multiyear refinancing craze, which included some of the lowest rates ever recorded, freed up cash for borrowers to sink into the economy. But refinancing activity began receding last spring, and rates have been rising since. The average rate on a 30-year, fixed-rate mortgage hit 4.32 percent this week, up from 3.54 percent a year ago, according to mortgage-finance firm Freddie Mac, based in McLean, Va.

The higher rates, soaring home prices and a tight inventory have kept potential buyers on the sidelines, hurting the sales of previously owned homes and undermining the recovery of the housing market, a huge contributor to economic growth. Homeowners who are reluctant to move and lose their low rates — a phenomenon that economists call interest rate “lock-in” — could slow the churn of home sales across the country.

Just let that roll around in your head for a bit. If home prices are soaring, that must mean buyers are bidding up prices. Otherwise, the houses would remain unsold, forcing sellers to lower prices eventually. That’s how markets work, when left alone. On the other hand, if rates are discouraging buyers, the banks will eventually have to lower rates to attract new borrowers.

A healthy turnover of homes is critical to a robust housing sector, enabling critical first-time home buyers to enter the market and existing homeowners to move or trade up. But housing experts worry that interest rates, which are expected to gradually rise to nearly 6 percent by late next year, will chill enthusiasm for home purchases. They say they’re already seeing signs of that, most recently among existing homeowners.

This is he problem of libertarian economics. They never see the other side of the balance sheet. Artificially suppressing interest rates today has consequences. There’s another side of the entry and it will make itself know eventually. In this case, pulling forward demand for housing with cheap credit means demand will be below average at some point in the future. Cheap credit is eating your cake before you bake it.

It’s too early to quantify the impact of the lock-in phenomenon. But it’s happened before and could happen again, say researchers who have studied the effects of rising rates on housing turnover. Statements by Federal Reserve Chair Janet L. Yellen this week sparked investor fears that the agency could soon begin allowing a key interest rate to rise, helping push mortgage rates even higher.

Ella Lore said she and her husband are fence-sitting. Now that their daughter is studying abroad, they would like to sell their D.C. home, buy a two-
bedroom condominium and rid themselves of the hassles and costs of maintaining a large home.

But when they did the math, they discovered that they would be paying about the same amount each month for considerably less space partly because of rising mortgage rates, Lore said. The couple refinanced into a loan with a 2.8 percent rate in 2012. Now, with a new loan, they’d get a 4.25 percent rate.

For two decades, people ave been planning and building their lives in a world of artificially cheap credit. When that cheap credit begins to unwind, suddenly everyone, even the prudent, have unanticipated problems. Think of it this way. If tomorrow the poles reversed and north was now south and south was now north, what would have to change in your life? The answer is everything.

Most of what you depend on, at some level, relies on the long held assumptions about the earth’s magnetic field. Money is just about as important. Credit is our money now, so when it gets more dear, money becomes more dear. That changes every financial relationship on earth. That either happens gradually or it happens all of a sudden, which is more likely as the gradual approach is delayed.